Distributable income must be actually available before additional tax for non-distribution can be imposed.

Section 104 additional tax on failure to distribute dividends was considered in light of the actual availability of distributable income. Although the statutory computation of gross total income and distributable income could mechanically support the assessment, the adjustment that added back an actual expenditure created only an artificial income figure. The provision is directed at preventing retention of real commercial profits, not taxing an assessee where dividend distribution was in fact impossible. On the facts described, the required satisfaction for levy could not be reached because no income was actually available for distribution, so the additional tax was not leviable.

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Issues: Whether additional income-tax under section 104 of the Income-tax Act, 1961 could be imposed when, on the actual facts, the assessee had no distributable income and the assessed distributable income arose only by adding back an expenditure actually incurred.

Analysis: The computation under the statutory definitions of distributable income and gross total income would formally support the assessment, but the adjustment made by adding back an actual expenditure artificially inflated the income. The object of section 104 is to prevent retention of available commercial profits and not to penalise an assessee for failing to distribute income that was never in fact available. The required satisfaction under section 104 necessarily includes whether dividend distribution was in fact possible, and an order cannot be sustained where distribution was impossible on the actual facts.

Conclusion: The additional tax under section 104 was not leviable and the assessee succeeded.

Ratio Decidendi: The power to levy additional tax for failure to distribute dividends depends on the factual availability of distributable income, and statutory definitions cannot be applied to impose tax on an artificial income that was never ually available for distribution.

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